Farm Crisis Begins as Agricultural Prices Collapse While Debt Remains

American agriculture enters a decade-long depression beginning in summer 1920 as commodity prices collapse following the end of wartime demand. Wheat prices fall from $2.50 per bushel to under $1.00; cotton drops from 35 cents per pound to 13 cents; corn collapses from $1.50 to 42 cents. Meanwhile, farmers remain burdened by debts incurred during the war years when high prices and government encouragement led them to expand production, purchase expensive machinery, and mortgage land at inflated values. The resulting debt deflation devastates rural America for an entire decade before the 1929 crash brings depression to cities.

The Federal Reserve’s tight money policies exacerbate the crisis. Having expanded credit during the war, the Fed raises interest rates sharply in 1920-1921 to combat inflation, triggering the sharpest deflation in American history. While Treasury Secretary Andrew Mellon celebrates the “necessary purge” and urban economies recover by 1922, agriculture never recovers. Land values fall 30-40% and remain depressed throughout the 1920s. An estimated 453,000 farms are foreclosed between 1920 and 1929. Rural banks, heavily invested in farm mortgages and agricultural loans, fail at unprecedented rates: approximately 5,000 rural banks collapse during the “prosperous” 1920s, long before the urban banking crisis begins.

Congress twice passes the McNary-Haugen bill, which would have established government purchases of surplus crops to maintain prices, but President Coolidge vetoes both attempts in 1927 and 1928, denouncing government intervention in markets. The Farm Bloc in Congress achieves only modest credit reforms through the Agricultural Credits Act of 1923, which proves insufficient. The agricultural depression demonstrates how policy choices favoring urban finance over rural production create regional sacrifice zones. Rural bank failures provide advance warning of systemic banking fragility that federal regulators ignore. When the stock market crashes in 1929, rural America has already endured a decade of depression, and the weakened rural banking system becomes a vector for spreading financial contagion nationwide.